A Clean Hydrogen Future Depends on Tax Credits as Well as Hubs

The Biden administration’s long anticipated announcement of seven regional clean hydrogen hubs has the potential to accelerate the momentum to build a clean hydrogen economy and position the US as the global leader in clean hydrogen deployment.

Whether this $7 billion federal commitment will translate into the large-scale private investment necessary to reduce emissions in hard-to-decarbonize sectors such as industry and freight transport, however, is still in doubt.

The growth of a hydrogen economy ultimately will depend on related federal incentives—specifically the clean hydrogen production tax credit in Section 45V of the federal tax code. The eligibility guidelines for those incentives are still pending, and how the Biden administration determines eligibility will make all the difference in how effective they’ll be.

Some environmental activists are pushing for restrictive rules to require that the power used to produce hydrogen come only from brand-new renewable energy sources that match the location of the production and only operate during specific time periods.

These concepts—additionality, deliverability, and time matching—would add great expense and complexity, threatening investment and delaying the growth of this important technology.

The concern over such requirements was highlighted in a series of recent letters sent to the Treasury Department and the White House by several labor unions, including North America’s Building Trades Unions, Laborers’ International Union of North America, United Association, United Brotherhood of Carpenters and Joiners of America, and the International Brotherhood of Electrical Workers.

Similar concerns were echoed by the organizers of both the California and New York regional hydrogen hubs (the California hub was selected by the Energy Department), all of whom called for guidelines that would provide the flexibility needed for a hydrogen industry to flourish.

The stakes are high—the White House is counting on the $7 billion in direct spending catalyzing nearly $43 billion in private sector hydrogen spending. The eligibility requirements for the Section 45V tax credit will determine whether that happens and, in turn, whether a diversity of would-be customers will have access to adequate and affordable clean hydrogen supplies.

As the Department of Energy warns in the US National Clean Hydrogen Strategy and Roadmap, “stakeholders on the production, demand, and financing sides highlight hesitancy to commit resources due to lack of price transparency and risks in clean hydrogen supply. Regulatory drivers at the state and federal level could help provide these long-term demand signals.”

There is little question that Section 45V is one of these pivotal drivers that will be critical to enabling the success of the hubs and the regional hydrogen economies they are designed to create.

The US can lead global clean hydrogen deployment, and the last two years have shown a concentrated effort to reinvest in American manufacturing and industrial opportunity, with a focus on expanding jobs for the clean energy workforce. The hydrogen industry has the potential to create thousands of US jobs in clean hydrogen production as well as facility construction, assuming these projects receive the necessary private sector investment.

The Biden administration has helped put the right ingredients in place for success. But if the final guidance of the Section 45V tax credit isn’t flexible, then the ambitious plans for a clean hydrogen economy are unlikely to be realized.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Marty Durbin is senior vice president for policy at the US Chamber of Commerce and serves as president of its Global Energy Institute.

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